Government Switches Student Loan Servicers: What You Need to Know

Since The Direct Loan Servicing Center contract has ended, student loans will be transferred to different companies the government will manage during the next several months.

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In July, the Department of Education announced changes to its federal student loan servicer team, meaning borrowers may soon see their loans transferred to different companies.

The government contracts companies to manage student loan repayment. With the end of a contract with the Direct Loan Servicing Center (ACS), loans will be transferred to FedLoan Servicing (PHEAA), Great Lakes Educational Loan Services, Nelnet and Sallie Mae during the next several months, a July 12 announcement said.

Four nonprofit servicers are also transferring loans. Accounts with COSTEP, EDGEucation Loans and EdManage will be transferred to MOHELA; KSA Servicing loans will be transferred to Aspire Resources Inc. The July 26 announcement says the loan-servicing platform used by the four nonprofit servicers will no longer be available.

Borrowers should receive notification of account transfers by email or letter.

Adam S. Minsky, a Boston lawyer specializing in student loan law, said he has had several people contact him as they receive transfer notification.

"They were contacted by a company they had never heard of before saying, We're going to be your new loan servicer, please start paying us," Minsky said. "Borrowers aren't being notified until the transfer is just about to happen or has already happened. That can be really scary for borrowers."

How to Prepare for the Move

Though the Education Department hopes the transition will go smoothly, as stated in the announcements, those with student loans may want to take a proactive approach to the changes.

"People need to be careful and make sure everything transfers correctly," said Heather Jarvis, a student loan expert. Jarvis said past transfers have yielded numerous reports of errors. "Whether or not their loans are transferred, people should periodically check that their loan servicers' records reflect what they expect."